Refer to attached images. Thanks Consider an economy composed of three agents: firms, households and government.Representative firm produces a final consumption good (Y) and with capital (K) and labor (N₂)according to following production function:1/2Y = z K¹/²N¹/²(1)where z denotes productivity of economy. Capital (K) is predetermined (i.e., its level wasdetermined prior to current period). Firm's problem, therefore, is to choose level of employmentthat maximizes its economic profit given prevailing real wage (w) in economy.In addition, in economy, households and government demand final consumption good producedby firms. Households receive income derived from their labor and from profits of firms (7), sincethey own firms. Aggregate demand of households for consumption good is given by followingexpression:(wh+π)2T2C =where firms' profits are defined as 7 = (Y- w*N) and I corresponds to Taxes that consumersmust pay to Government for latter to finance their consumption G. Assume that there is only onefirm and one worker.(2) 1.3.Solve firms' profit maximization problem. Derive demand for labor, supply of goods andfirm's profits as a function of real wage, parameters and exogenous variables.Define and explain in detail Competitive Equilibrium situation, making clear relationshipbetween markets involved, along with differentiating endogenous and exogenous variables.Consider following values for parameters: Z = 4, K = 7, G = 10, h = 16. Show that valueof competitive equilibrium real wage is w*=2.Determine competitive equilibrium output, consumption and employment.5. Without determining numerically, what effect should you expect on w* in case z variabledoubles? Explain in detail intuition behind this (Hint: think of labor market equilibrium).6. True, False, or Uncertain? A benevolent planner centralizing all decisions in this economycould achieve a more efficient outcome than what is achieved by market allocation. Refer totruth of statement, explaining in detail what are differences in equilibrium situations.

Labor productivity, often referred to simply as "productivity," is a measure of the efficiency and…

Consider an economy composed of three agents: firms, households and government. Representative firm produces a final consumption good (Y) and with capital (K) and labor (ND) according to following production function: Y = z K¹/² N1¹/² -1/2 (1) where z denotes productivity of economy. Capital (K) is predetermined (i.e., its level was determined prior to current period). Firm's problem, therefore, is to choose level of employment that maximizes its economic profit given prevailing real wage (w) in economy. In addition, in economy, households and government demand final consumption good produced by firms. Households receive income derived from their labor and from profits of firms (7), since they own firms. Aggregate demand of households for consumption good is given by following expression: (wh+n) 2 T 2 C = where firms' profits are defined as 7 = (Y-w*N) and I corresponds to Taxes that consumers must pay to Government for latter to finance their consumption G. Assume that there is only one firm and one worker. (2)